Financial glossary

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Cabinet crowd
NYSE members who trade bonds with a low daily traded volume.

Cabinet security
A stock or bond listed on a major exchange with low daily traded volume.

Cable
Exchange rate between British pound sterling and the U.S. dollar.

CAC 40 index
A broad-basedindex of common stocks composed of 40 of the 100 largest companies listed on the forward segment of the official list of the Paris Bourse.

Cage
A section of a brokerage firm used for receiving and disbursing funds. Financial glossary.

Calendar
List of new issues scheduled to come to market shortly.

Calendar effect
Describes the tendency of stocks to perform differently at different times. For example, a number of researchers have documented that historically, returns tend to be higher in January compared to other months (especially February). Others have documented returns patterns across days of the week and within the day. Some of these patterns are found in volume and volatility as well as returns.  Financial glossary.

Calendar spread
Applies to derivative products. A strategy in which there is a simultaneous purchase and sale of options of the same class at the same strike prices, but with different expiration date.

Call
An option that gives the holder the right to buy the underlying asset. Financial glossary.

Call date
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.

Call feature
Part of the indenture agreement between the bond issuer and buyer describing the schedule and price of redemptions prior to maturity.

Call loan
A loan repayable on demand. Sometimes used as a synonym for broker loan or broker overnight loan.  Financial glossary.

Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge.

Call option
An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract. Financial glossary.

Call an option
To exercise a call option.

Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.  Financial glossary.

Call protection
A feature of some callable bonds that establishes an initial period when the bonds may not be called.

Call provision
An embedded option granting a bond issuer the right to buy back all or part of an issue prior to maturity.

Call risk
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Financial glossary.

Call swaption
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating-rate payer.

Callability
Feature of a security that allows the issuer to redeem the security prior to maturity by calling it in or forcing the holder to sell it back.  Financial glossary.

Callable
Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. Bonds are usually called when interest rates fall so significantly that the issuer can save money by issuing new bonds at lower rates.

Canadian agencies
Agency banks established by Canadian Banks in the U.S. Financial glossary.

Canadian Dealing Network (CDN)
The organized OTC market of Canada. Formerly known as the Canadian Over-the-Counter Automated Trading System (COATS), the CDN became a subsidiary of the Toronto Stock Exchange in 1991.  Financial glossary.

Cancel
To void an order to buy or sell from (a) the floor or (b) the trader/salesperson's scope. In Autex, the indication still remains on record as having once been placed unless it is expunged.

Canceled Certificates
Before the issuance of a new certificate, the old certificate is presented to the Transfer Agent and is canceled.  Financial glossary.

"Cannot complete"
In the context of general equities, inability to finish an order on a principal or agency basis, given prevailing price instructions and/or market conditions.

Cap
An upper limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM). Also, an OTC derivatives contract consisting of a series of European interest rate call options; used to protect an issuer of floating-rate debt from interest rate increases. Each individual call option within the cap is called a caplet.  Financial glossary.

Capacity
Credit grantors' measurement of a person's ability to repay loans. Financial glossary.

Capacity utilization rate
The percentage of the economy's total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion.

Capital
Money invested in a firm.

Capital account
Net result of public and private international investment and lending activities.  Financial glossary.

Capital allocation decision
Allocation of invested funds between risk-free assets and the risky portfolio.

Capital asset
A long-termasset, such as land or a building, not purchased or sold in the normal course of business.

Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and expected return and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium multiplied by the asset's systematic risk. Theory was invented by William Sharpe (1964) and John Lintner (1965). The early work of Jack Treynor is was also instrumental in the development of this model.  Financial glossary.

Capital budget
A firm's planned capital expenditures.

Capital budgeting
The process of choosing the firm'slong-term assets.

Capital Builder Account (CBA)
A Merrill Lynch brokerage account that allows investors to access the loan value of his or her eligible securities to buy or sell securities. Excess cash in a CBA can be invested in a money market fund or an insured money market deposit account without losing access to the money.  Financial glossary.

Capital expenditures
Amount used during a particular period to acquire or improve long-term assets such as property, plant or equipment.

Capital flight
The transfer of capital abroad in response to fears of political risk.  Financial glossary.

Capital formation
Expansion of capital or capital goods through savings, which leads to economic growth.

Capital gain
When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their netcost or original basis. If a stock is sold below cost, the difference is a capital loss.  Financial glossary.

Capital gains distribution
A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders.

Capital gains tax
The tax levied on profits from the sale of capital assets. A long-term capital gain, which is achieved once an asset is held for at least 12 months, is taxed at a maximum rate of 20% (taxpayers in 28% tax bracket) and 10% (taxpayers in 15% tax bracket). Assets held for less than 12 months are taxed at regular income tax levels and, since January 1, 2000, assets held for at least five years are taxed at 18% and 8%.  Financial glossary.

Capital gains yield
The price change portion of a stock's return.

Capital goods
Goods used by firms to produce other goods, e.g. office buildings, machinery, equipment.

Capital growth
The increase in an asset's market price. Also called capital appreciation.  Financial glossary.

Capital infusion
Often refers to the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. In the context of venture capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash.

Capital-intensive
Used to describe industries that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive.  Financial glossary.

Capital International Indexes
Market indexes maintained by Morgan Stanley that track major stock markets worldwide.

Capital lease
A lease obligation that has to be capitalized on the balance sheet. Financial glossary.

Capital loss
The difference between the netcost of a security and the sales price, if the security is sold at a loss. Also used in a more general context to refer to the market for stocks, bonds, derivatives and other investments.  Financial glossary.

Capital market
Traditionally, this has referred to the market for trading long-term debt instruments (those that mature in more than one year). That is, the market where capital is raised. More recently, capital markets is used in a more general context to refer to the market for stocks, bonds, derivatives and other investments.

Capital market efficiency
The degree to which the present asset price accurately reflects current information in the market place.  Financial glossary.

Capital market imperfections view
The view that issuing debt is generally valuable, but that the firm's optimal choice of capital structure involves various other views of capital structure (net corporate/personal tax, agency cost, bankruptcy cost and pecking order), that result from considerations of asymmetric information, asymmetric taxes and transaction costs.  Financial glossary.

Capital market line
The line defined by every combination of the risk-free asset and the market portfolio. The line represents the risk premium you earn for taking on extra risk. Defined by the capital asset pricing model.

Capital rationing
Placing limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital or by setting a maximum on the entire capital budget or parts of it.

Capital requirements
Financing required for the operation of a business, composed of long-term and working capital plus fixed assets.

Capital shares
One of two types of shares in a dual-purpose investment company, which entitle the holder to the appreciation or depreciation in the value of a portfolio, as well as the gains from trading in the portfolio.  Financial glossary.

Capital stock
Stock authorized by a firm's charter and having par value, stated value or no par value. The number and the value of issued shares are usually shown, together with the number of shares authorized, in the capital accounts section of the balance sheet.

Capital structure
The makeup of the liabilities and stockholders'equity side of the balance sheet, especially the ratio of debt to equity and the mixture of short and long maturities.  Financial glossary.

Capital surplus
Amounts of directly contributed equity capital in excess of the par value.

Capital turnover
Calculated by dividing annual sales by average stockholder equity (net worth). The ratio indicates how much a company could grow its current capital investment level. Low capital turnover generally corresponds to high profit margins.

Capitalization
The debt and/or equity mix that funds a firm's assets.

Capitalization method
A method of constructing a replicating portfolio in which the manager purchases a number of the most highly capitalized names in the stock index in proportion to their capitalization.

Capitalization rate
The interest rate used to calculate the present value of a number of future payments.  Financial glossary.

Capitalization ratios
Also called financial leverage ratios, these ratios compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow.

Capitalization table
A table showing the capitalization of a firm, which typically includes the amount of capital obtained from each source - long-term debt and common equity - and the respective capitalization ratios.  Financial glossary.

Capitalization-Weighted Index
A stock index which is computed by adding the capitalization (float times price) of each individual stock in the index and then dividing by the divisor. The stocks with the largest market values have the heaviest weighting in the index.

Capitalized
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year.

Capitalized interest
Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing.  Financial glossary.

Capped-Style Option
A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the Option's cap price.

Captive finance company
A company, usually a subsidiary that is wholly owned, whose main function is financing consumer purchases from the parent company.  Financial glossary.

Caput
An exotic option. It represents a call option on a put option. That is, you purchase the option to buy a put option at a particular price on or before the expiration date.

Car
A loose quantity term sometimes used to describe the amount of a commodity underlying one commodity contract; e.g."a car of bellies." Derived from the fact that quantities of the product specified in a contract once corresponded closely to the capacity of a railroad car.

Caracas Stock Exchange
Originally established in 1947 and merged with a competitor in 1974 to become the only securities exchange of Venezuela.  Financial glossary.

Cargo
Goods being transported.

Carriage and Insurance Paid To
Seller is responsible for the payment of freight to carry goods to a named overseas destination. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. The risk of loss or damage is transferred from the seller to the buyer once the goods are delivered into the carrier's custody. This term may be used for any mode of transport.  Financial glossary.

Carriage Paid To
Seller is responsible for the payment of freight to carry goods to a named overseas destination. The risk of loss or damage is transferred from the seller to the buyer when the goods have been delivered into the carrier's custody. This term may be used for any mode of transport.

Carrot equity
British slang for an equity investment with the added benefit of an opportunity to purchase more equity if the company reaches certain financial goals.

Carry Trade
A trade where you borrow and pay interest in order to buy something else that has higher interest. For example, with a positively sloped term structure (short rates lower than long rates), one might borrow at low short term rates and finance the purchase of long-term bonds. The carry return is the coupon on the bonds minus the interest costs of the short-term borrowing. Of course, if long-term interest rates unexpectedly rose (and long-term bond prices fell as a result), the carry trade could become unprofitable. Indeed, if this occured, there could be a number of investors trying to unwind the carry trade, which would involve selling the long-term bonds. It is possible that this could exacerbate the increase in long-term interest rates, i.e. push the rates even higher.  Financial glossary.

Carryforwards
Tax losses allowed to be applied to offset future income in some specified number of future years.

Carrying charge
The fee a broker charges for carrying securities on credit, such as on a margin account. Also, any component of a futures basis, such as storage costs, interest charges or insurance costs on the underlying interest.

Carrying costs
Costs that increase with increases in the level of investment in current assets.  Financial glossary.

Cartel
A group of businesses or nations that act together as a single producer to obtain market control and to influence prices in their favor by limiting production of a product. The United States has laws prohibiting cartels.  Financial glossary.

Carve out
Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only offers a minority share to the equity market. Also known as equity carve out.

Cash
The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and banker's acceptances. Cash equivalents on balance sheets include securities that mature within 90 days (e.g., notes).

Cash account
A brokerage account that settles transactions on a cash-rather than credit-basis.

Cash Available for Debt Service
Ratio of cash assets to debt service (interest plus nearby principal). Used in evaluating the risk of a project or firm. The higher the ratio the less likely the firm or project will fail to meet its debt obligations.

Cash asset ratio
Cash and marketable securities divided by current liabilities.  Financial glossary.

Cashed-Based
Refering to an option or future that is settled in cash when exercised or assigned. No physical entity, either stock or commodity, is received or delivered.

Cash basis
Refers to the accounting method that recognizes revenues and expenses when cash is actually received or paid out.

Cash and equivalents
The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as bonds and Banker's Acceptances. Cash equivalents on balance sheets include securities (e.g. notes) that mature within 90 days.

Cash budget
A forecasted summary of a firm's expected cash inflows and cash outflows as well as its expected cash and loan balances.  Financial glossary.

Cash & carry
Applies to derivative products. Combination of a long position in a stock/index/commodity and short position in the underlying futures, which entails a cost of carry on the long position. Also known as cash and carry arbitrage.

Cash commodity
The actual physical commodity, as distinguished from a futures contract.

Cash conversion cycle
The length of time between a firm's purchase of inventory and the receipt of cash from accounts receivable.

Cash cow
A company that pays out most of its earnings per share to stockholders as dividends. Or, a company or division of a company that generates a steady and significant amount of free cash flow.  Financial glossary.

Cash cycle
In general, the time between cash disbursement and cash collection. In networking capital management, it can be thought of as the operating cycle less the accounts payable payment period.

Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash deficiency the project may experience.

Cash delivery
The provision of some futures contracts that requires not delivery of underlying assets but settlement according to the cash value of the asset.

Cash discount
An incentive offered to purchasers of a firm's product for payment within a specified time period, such as ten days.  Financial glossary.

Cash dividend
A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.

Cash earnings
A firm's cash revenues less cash expenses, which excludes the costs of depreciation.

Cash-equivalent items
Examples include Treasury bills and Banker's Acceptances.  Financial glossary.

Cash flow
In investments, cash flow represents earnings before depreciation, amortization and non-cash charges. Sometimes called cash earnings. Cash flow from operations (called funds from operations by real estate and other investment trusts) is important because it indicates the ability to pay dividends.

Cash flow after interest and taxes
Net income plus depreciation.

Cash flow break-even point
The point below which the firm will need either to obtain additional financing or to liquidate some of its assets to meet its fixed costs.  Financial glossary.

Cash flow per common share
Cash flow from operations minus preferred stock dividends, divided by the number of common shares outstanding.

Cash flow coverage ratio
The number of times that financial obligations are covered by earnings before interest, taxes, rental payments and depreciation.

Cash flow matching
Also called dedicating a portfolio, this is an alternative to multiperiod immunization that calls for the manager to match the maturity of each element in the liability stream, working backward from the last liability to assure all required cash flows.

Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations, calculated as the sum of net income plus non cash expenses that are deducted in calculating net income.

Cash flow time line
Line depicting the operating activities and cash flows for a firm over a particular period.

Cash in Advance
A payment term meaning the buyer pays the seller before shipment is effected.

Cash In Lieu
In a typical exchange offer, "old" shares of the target company are exchanged for "new shares".

Cash investments
Short - term debt instruments - such as commercial paper, banker's acceptances, and Treasury bills - that mature in less than one year. Also known as money market instruments or cash reserves.  Financial glossary.

Cash management
Refers to the efficient management of cash in a business in order to put the cash to work more quickly and to keep the cash in applications that produce income, such as the use of lock boxes for payments.

Cash management bill
Very short-maturity bills that the Treasury occasionally sells because its cash balances are down and it needs money for a few days.

Cash markets
Also called spot markets, these are markets that involve the immediate delivery of a security or instrument.

Cash offer
Often used in risk arbitrage. Proposal, either hostile or friendly, to acquire a target company through the payment of cash for the stock of the target.

Cash-on-cash return
A method used to find the return on investments when there is no active secondary market. The yield is determined by dividing the annual cash income by the total investment.

Cash on delivery
In the context of securities, this refers to the practice of institutional investors paying the full purchase price for securities in cash.  Financial glossary.

Cash-out Laws
These laws enable shareholders to sell their stakes to a "controlling" shareholder at a price based on the highest price of recently acquired shares. This works something like Fair-Price provisions extended to non takeover situations. A few states have these laws.

Cash plus convertible
Convertible bond that requires cash payment upon conversion.

Cash position
The percentage of a mutual fund's assets invested in short-term reserves, such as US Treasury bills or other money market instruments.

Cash price
Applies to derivative products.

Cash ratio
The proportion of a firm's assets held as cash. Financial glossary.

Cash sale/settlement
Transaction in which a contract is settled on the same day as the trade date or the next day if the trade occurs after 2:30 p.m. EST and the parties agree to this procedure. Often occurs because a party is strapped for cash and cannot wait until the regular three-business day settlement.

Cash Settlement
The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock.  Financial glossary.

Cash settlement contracts
Futures contracts such as stock index futures that settle for cash and do not involve delivery of the underlying.

Cash-surrender value
The amount an insurance company will pay if the policy holder tenders or cashes in a whole life insurance policy.

Cash transaction
A transaction in which exchange is immediate in the form of cash, unlike a forward contract (which calls for future delivery of an asset at an agreed-upon price).

Cashbook
An accounting book that is composed of cash receipts plus disbursements. This balance is posted to the cash account in the ledger.

Cashier's check
A check drawn directly on a customer's account, making the bank the primary obligor and assuring firm that the amount will be paid.

Cashout
Occurs when a firm runs out of cash and cannot readily sell marketable securities.  Financial glossary.

Casualty-insurance
Insurance protecting a firm or home - owner against, damage, loss of property and other liabilities.

Casualty loss
A financial loss caused by damage, destruction or loss of property as a result of an unexpected or unusual event.

Catastrophe call
Early redemption of a municipal revenue bond because a catastrophe has destroyed the project that provided the revenue source backing the bond.

Cats and dogs
Speculative stocks with short histories of sales, earnings and dividend payments.

Caveat emptor, caveat subscriptor
Latin expressions for "buyer beware" and "seller beware," which warn of overly risky, inadequately protected markets.

Cease-and-desist order
An order issued after notice and opportunity for hearing, requiring a depository institution, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts.  Financial glossary.

Cede & Co.
Nominee name for The Depository Trust Company, a large clearing house that holds shares in its name for banks, brokers and institutions in order to expedite the sale and transfer of stock.

CEDEL
A centralized clearing system for Eurobonds.

Ceiling
The highest price, interest rate or other numerical factor allowable in a financial transaction.

Central bank
A country's main bank whose responsibilities include the issue of currency, the administration of monetary policy, open market operations and engaging in transactions designed to facilitate healthy business interactions.

Central bank intervention
The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.

Central Limit Theorem
The Law of Large Numbers states that as a sample of independent, identically distributed random numbers approaches infinity, its probability density function approaches the normal distribution.  Financial glossary.

Centralized cash flow management
Provision of consolidated cash management decisions to all MNCunits from one location, usually at the parent's headquarters.

Cents per share
The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned.

Checkwriting
Free check writing privileges offered with non retirement accounts for select mutual funds.

Certainty equivalent
An amount that would be accepted today (risk free) in lieu of a chance to receive a possibly higher, but uncertain, amount.

Certainty Equivalent Return
The certain (zero risk) return an investor would trade for a given (larger) return with an associated risk. For example, a particular investor might trade an uncertain expected 4% active return with 6% risk, for a certain active return of 1.5%. Used as a way to incorporate individual investor risk tolerances into financial decisions.

Certificate
A formal document used to record a fact and used as proof of the fact, such as stock certificates, that evidence ownership of stock in a corporation.  Financial glossary.

Certificate of Accrual on Treasury Securities
Refers to a zero-coupon US Treasury issue that is sold at a deep discount from the face value and pays no coupon interest during its lifetime, but returns the full face value at maturity.

Certificate of deposit (CD)
Also called a time deposit this is a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited. A CD has a maturity date and a specified interest rate, and can be issued in any denomination. The duration can be up to five years.

Certificate of Origin
A document certifying the country of origin for goods sold internationally.

Certificates of Amortized Revolving Debt
Pass-through securities backed by credit card receivables.

Certificates of Automobile Receivables
Pass-through securities backed by automobile loan receivables.  Financial glossary.

Certificateless municipals
Municipal bonds with one certificate which is valid for the entire issue and having no individual certificates, easing transactions.

Certified check
A bank guaranteed check for which funds are immediately withdrawn and for which the bank is legally liable. Financial glossary.

Certified Financial Planner
A person who has passed examinations accredited by the Certified Financial Planner Board of Standards, showing that the person is able to manage a client's banking, insurance, estate,  investment and tax affairs.

Certified financial statements
Financial statements that include an accountant's opinion. Financial glossary.

Certified Public Accountant
An accountant who has met certain standards, including experience, age, licensing and passed exams in a particular state.  Financial glossary.

Chair of the board
Highest-ranking member of a Board of Directors, who presides over its meetings and who is often the most powerful officer of a corporation.

Chaos
A deterministic non-linear dynamic system that can produce random looking results. A chaotic system must have a fractal dimension and exhibit sensitive dependence on initial conditions.

Chapter 7 Proceedings
Provisions of the Bankruptcy Reform Act under which the debtor firm's assets are liquidated by a court because reorganization would fail to establish a profitable business.

Chapter 11 Proceedings
Provisions of the Bankruptcy Reform Act under which the debtorfirm is reorganized by a court because the estimated value of the reorganized firm exceeds the expected proceeds from its liquidation.  Financial glossary.

Changes in financial position
Sources and uses of funds provided from operations that alter a company's cash flowposition: depreciation, deferred taxes, other sources and capital expenditures.

Characteristic line
The market model applied to a single security; a regression of security returns on the benchmark return. The slope of the regression line is a security's beta.

Characteristic portfolio
A portfolio which efficiently represents a particular asset characteristic. For a given characteristic, it is the minimum risk portfolio, with portfolio characteristic equal to 1. For example, the characteristic portfolio of asset betas is the benchmark. It is the minimum risk beta = 1 portfolio.

Charge
The document evidencing mortgage security required by Crown Law (law derived from English law). A Fixed Charge refers to a defined set of assets and is usually registered. A Floating Charge refers to other assets which change from time to time (ie. cash, inventory, etc.), which become a Fixed Charge after a default.

Charitable remainder trust
An irrevocable trust that pays income to a designated person or persons until the grantor's death, when the income is passed on to a designated charity. A charitable lead trust by contrast allows the charity to receive income during the grantor's life and the remaining income to pass to designated family members upon the grantor's death.  Financial glossary.

Charter Amendment Limitations
These provisions limit shareholders' ability to amend the governing documents of the corporation. This might take the form of a supermajority vote requirement for charter or bylaw amendments, total elimination of the ability of shareholders to amend the bylaws or the ability of directors beyond the provisions of state law to amend the bylaws without shareholder approval.

Chartered Financial Analyst
An experienced financial analyst who has passed examinations in economics, financial accounting, portfolio management, security analysis and standards of conduct given by the Institute of Chartered Financial Analysts.

Chartists
A technical analyst who charts the patterns of stocks, bonds and commodities to find trends in patterns of trading used to advise clients.

Chasing the market
Purchasing a security at a higher price than expected because prices are rapidly climbing or selling a security at a lower level when prices are quickly falling.

Chastity bonds
Bonds redeemable at par value in the case of a takeover.

Chattel Mortgage
A loan agreement that grants to the lender a lien on property other than real estate. Chattel is personal or movable property.  Financial glossary.

Cheapest to deliver issue
The acceptable Treasury security with the highest implied repo rate; the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.

Check
A bill of exchange representing a draft on a bank from deposited funds that pays a certain sum of money to a certain person or party.

Check clearing
The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system.

Checking the market
Searching for bid and offer prices from market makers to find the best deal.  Financial glossary.

Chicago Board Options Exchange
A securities exchange created in the early 1970s for the public trading of standardized option contracts. Primary place for the trading of stock options, foreign currency options and index options (S&P 100, 500, and OTC 250 index).

Chicago Board of Trade
The second largest futures exchange in the US and a pioneer in the development of financial futures and options.

Chicago Mercantile Exchange (CME)
Chicago Mercantile Exchange (CME) is the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. Founded in 1898 as a not-for-profit corporation, in November 2000 CME became the first U.S. financial exchange to demutualize and become a shareholder-owned corporation. Its futures and options on futures trade on CME's trading floors, on its GLOBEX electronic trading platform and through privately negotiated transactions. CME has four major product areas based on interest rates (including Eurodollar futures, the world's most actively traded futures contract), stock indexes (such as the (S&P 500 and Nasdaq-100 futures), foreign exchange and commodities.  Financial glossary.

Chicago Stock Exchange
A major exchange trading only stocks, with 90% of trades taking place on an automated execution system, called MAX.

Chief Executive Officer
A title held often by the Chairperson of the Board, or the president. The person principally responsible for the activities of a company.

Chief Financial Officer
The officer of a firm responsible for handling the financial affairs of a company.

Chief Operating Officer
The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president.

Chinese hedge
Applies mainly to convertible securities. Trading hedge in which one is short the convertible and long the underlying common, in the hope that the convertible's premium will fall.

Chinese wall
Communication barrier between financiers at a firm (investment bankers) and traders. This barrier is erected to prevent the sharing of inside information that bankers are likely to have.

Choice market
Applies mainly to international equities. Locked market in London terminology.  Financial glossary.

Churning
Excessive trading of a client's account in order to increase the broker's commissions.

Cincinnati Stock Exchange
Stock exchange based in Cincinnati that is the only fully automated stock exchange in the US. It has no tradingfloor, but handles all members transactions using computers.

Circle
Underwriters, actual or potential, often seek out and "circle" investor interest in a new issue before final pricing. The customer circled has basically made a commitment to purchase the issue if it is available at an agreed-upon price. If the actual price is other than that stipulated, the customer supposedly has first offer at the actual price.

Circuit breakers
Measures instituted by exchanges to stop trading temporarily when the market has fallen by a certain percentage in a specified period. They are intended to prevent a market free fall by permitting buy and sell orders to rebalance.

Circus swap
A fixed-rate currency swap against floating US dollar LIBOR payments. An acronym that stands for Combined Interest Rate and Currency Swap.

Citizen bonds
Certificateless municipals that can be registered on stock exchanges and are listed in newspapers.

Claim dilution
A decrease in the likelihood that one or more of a firm's claimants will be fully repaid, including time value of money considerations.

Claimant
A party to an explicit or implicit contract.  Financial glossary.

Class
In the case of derivative products, options of the same type-put or call-with the same underlying security.

Class action
A legal complaint filed by a lawyer or group of lawyers for a group of petitioners with an identical grievance, often with an award proportionate to the number of shareholders involved.

Class of Options
Option contracts of the smae type (call or put) and Style (American, European or Capped) that cover the same underlying security.

Classified Board
Also known as Staggered Board: is one in which the directors are placed into different classes and serve overlapping terms. Since only part of the board can be replaced each year, an outsider who gains control of a corporation may have to wait a few years before being able to gain control of the board. This slow replacement makes a classified board an effective delays of takeovers. Sometimes known as a delay provision.  Financial glossary.

Classified stock
The division of stock into more than one class of common stock, usually called Class A and Class B. The specific features of each class, which are set out in the charter and bylaws, usually give certain advantages to the Class A shares, such as increased voting power.

Claused Bill of Lading
A bill of lading with a notation that indicates damage or shortage. Also called foul bill of lading and are the opposite of clean bills of lading.

Clawback
The ability to recover prior project cash flow that may have been distributed or paid away as dividends to sponsors.

Clawback
A dividend clawback is an arrangement whereby the equity owners commit to use dividends they have received in the past to finance the cash needs of the project or corporation in the future. Clawback has a more general definition. For example, premiums paid on an insurance policy may be refunded (or clawed back) if the policy is cancelled in a certain time frame. Such an arrangement is specified in the contract and referred to as a clawback provision.  Financial glossary.

Clean
In the context of general equities, block trade that matches buy or sell orders/interests, sparing the block trader any inventory risk (no net position and hence none available for additional customers). Natural.

Clean Bill of Lading
A bill of lading bearing no findings of damage or shortage.

Clean opinion
An auditor's opinion reflecting an unqualified acceptance of a company's financial statements.

Clean price
Bond price excluding accrued interest.

Clean Report of Findings
A report issued by an inspection firm, indicating that price has been verified, that the goods have been inspected prior to shipment and that both conform to buyer specifications.

Clean up
In the context of general equities, purchase/sale of all the remaining supply of stock or the last piece of a block, in a trade-leaving a net zero position.

"Clean your skirts"
In the context of general equities, i.e. "make all your obligated calls" check with all prior obligations in a security. Often preceded by "subject to."

Clear
To settle a trade by the seller delivering securities and the buyer delivering funds in the proper form. A trade that does not clear is said to fail. Comparison of the details of a transaction between broker/dealers prior to settlement; final exchange of securities for cash on delivery.

Clear a position
To eliminate a long or short position, leaving no ownership or obligation.

Clear title
Title to ownership that is untainted by any claims on the property or disputed interests and therefore available for sale. This is usually checked through a title search by a title company.

Clearing corporations
Organizations that are affiliated with exchanges and are used to complete securities transactions by taking care of validation, delivery and settlement.

Clearing House Automated Payments System
A computerized clearing system for sterling funds that began operations in 1984. It includes 14 member banks, nearly 450 participating banks and is one of the clearing companies within the structure of the Association for Payment Clearing Services.  Financial glossary.

Clearing House Electronic Subregister System (CHESS)
CHESS is the automatic transfer and settlement system for the majority of Australian Stock Exchange (ASX) listed securities.

Clearing house funds
Funds from the Federal Reserve System, requiring three days to clear, that are passed to and from banks.

Clearing House Interbank Payments System
An international wire transfer system for high-value payments operated by a group of major banks.

Clearinghouse
An adjunct to a futures exchange through which transactions executed on its floor where trades are settled by a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate financing of the entire operation.  Financial glossary.

Clearing member
A member firm of a clearing house. Each clearing member must also be a member of the exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of a non-clearing member must be registered with and eventually settled through, a clearing member.

Clearing Member Trade Agreement
An agreement that allows a client to execute derivative trades through different brokers yet consolidate positions for clearing purposes at one brokerage firm.

Clientele effect
Describes the tendency of funds or investments to be followed by groups of investors who have similar preferences for a firm which follows a particular financing policy, such as the amount of leverage it uses.

Clone fund
A new fund set up in a fund family to emulate another successful fund.

Close
The close is the period at the end of the trading session. Sometimes used to refer to closing price.

Close a position
In the context of general equities, eliminate an investment from one's portfolio, by either selling a long position or covering a short position. Financial glossary.

Close-end credit
An agreement in which advanced credit plus any finance charges are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements.

Close market
An market in which there is a narrow spread between bid and offer prices, due to a high volume of trading and many competing market makers.

Closed corporation
A corporation whose shares are owned by just a few people, having no public market.  Financial glossary.

Closed-end management company
An investment company that issues a fixed number of shares of the mutual fund that it manages and does not create new shares if demand increases.

Closed-end fund
An investment company that issues shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value.

Closed-end management company
An investment company that has only a set number of shares of the mutual fund that it manages and does not create new shares if demand increases.

Closed-end mortgage
Mortgage against which no additional debt may be issued.

Closed fund
A mutual fund that is no longer issuing shares, mainly because it has grown too large.

Closed out
Position that is liquidated when the client does not meet a margin call or cover a short sale.

Closely held
A corporation whose voting stock is owned by only a few shareholders.

Closely held company
A company who has a small group of controlling shareholders. In contrast, a widely-held firm has many shareholders. It is difficult or impossible to wage a proxy battle for any closely-held firm.

Closing costs
All the expenses involved in transferring ownership of real estate.

Closing price
Price of the last transaction of a particular stock completed during a day's trading session on an exchange.

Closing purchase
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock or in a given series of options.

Closing quote
The last bid and offer prices of a particular stock at the close of a day's trading session on an exchange.

Closing range
Also known as the range. The high and low prices or bids and offers, recorded during the period designated as the official close.

Closing sale
A transaction in which the seller's intention is to reduce or eliminate a long position in a stock or a given series of options.

Closing tick
The net of the number of stocks whose closing prices are higher than their previous trades (uptick) against the number of stocks whose closing prices were lower than their previous trades (downtick). A positive closing tick indicates "buying at the close" or a bullish market; a negative closing tick indicates "selling at the close" or a bearish market.  Financial glossary.

Closing transaction
Applies to derivative products. Buy or sell transaction that eliminates an existing position (selling a long option or buying back a short option).

Cloud on title
Any claim or encumbrance, usually discovered in a title search, that may impair the title to a property and make its validity questionable.

Club
A group of underwriters who do not need to proceed to form a syndicate.

Cluster analysis
A statistical technique that identifies clusters of stocks whose returns are highly correlated within each cluster and relatively uncorrelated across clusters. Cluster analysis has identified groupings such as growth, cyclical, stable and energy stocks.  Financial glossary.

CMO REIT
A very risky type of Real Estate Investment Trustinvesting in the residual cash flows of Collateralized Mortgage Obligation (CMOs). CMO cash flows are derived from the difference between the rates paid by the mortgage loan holders and the lower, shorter-term rates paid to CMO investors.

Co-financing
A type of financing in which the different lenders agree to fund under the same documentation and security packages but may have different interest rates, repayment profiles and terms.

Co-manager
A second-tier Participant, ranked by size of participation.

Co-agent
An institution appointed by the issuer as co-transfer agent accepts and transfers certificates and sends daily activity journals to the primary record-keeping agent. A co-agent does not maintain security holder records, but is used to facilitate the transfer of stock in a geographic region not easily accessible to the issuer or its principal transfer agent.  Financial glossary.

Coattail investing
A risky trading practice of making trades similar to those of other successful investors, usually institutional investors.

Code of procedure
The guide of the National Association of Securities Dealers used to adjudicate complaints filed against NASD members.

Coefficient of determination
A measure of the goodness of fit of the relationship between the dependent and independent variables in a regression analysis; for instance, the percentage of variation in the return of an asset explained by the market portfolio return. Also known as R-square.

Coefficient of Variation
A measure of investment risk that defines risk as the standard deviation per unit of expected return.

Coface
The French Export Credit Agency.

Coffee, Sugar & Cocoa Exchange (CS&CE)
The New York-based commodity exchange trading futures and options. The CS&CE shares the trading floor at the Commodities Exchange Center.

Cofinancing agreements
Joint participation of the World Bank and other agencies or lenders in providing funds to developing countries. Financial glossary.

Coherent Market Hypothesis
A hypothesis that the probability density function of the market may be determined by a combination of group sentiment and fundamental bias. Depending on combinations of these two factors, the market can be in one of four states: random walk, unstable transition, chaos or coherence.

Coincident indicators
Economic indicators that give an indication of the current status of the economy.

Coinsurance effect
Refers to the fact that the merger of two firms lessens the probability of default on either firm's debt.

Cold-calling
Calling potential new customers in the hope of selling stocks, bonds or other financial products and receiving commissions.

Collar
Refers to the ceiling and floor of the price fluctuation of an underlying asset. A collar is usually set up with options, swaps or by other agreements. In corporate finance, the collar strategy of buying puts and selling calls is often used to mitigate the risk of a concentrated position in (sometimes) restricted stock. When the restricted owner can't sell the stock, but needs to diversify the risk, a collar transaction is one of the few tools available. Many corporate executives who receive chunks of their compensation in restricted stock need to employ this strategy to mitigate the diversification risk in their overall portfolio.  Financial glossary.

Collateral
In the context of project financing, additional security pledged to support the project financing.

Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds or other financial asset as security.

Collateralized Bond Obligation (CBO)
Investment-grade bonds backed by a collection of junk bonds with different levels of risk, called tiers, that are determined by the quality of junk bond involved. CBOs backed by highly riskyjunk bonds receive higher interest rates than other CBOs.

Collateralized Debt Obligation
A general inclusive term which covers Collateralized Bond Obligations, Collateralized Loan Obligations and Collateralized Mortgage Obligations,

Collateralized loan obligation
A security backed by a pool of commercial or personal loans , structured so that there are several classes of bondholders with varying maturities, called tranches. Similar in structure to Collateralized Mortgage Obligations.

Collateralized mortgage obligation
A security backed by a pool of pass-through rates , structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus.  Financial glossary.

Collecting Bank
A bank that assists in obtaining payment in accordance with draft payment terms.

Collection
The presentation of a negotiable instrument for payment or the conversion of any accounts receivable into cash.

Collection float
The period between the time is a check is deposited in an account and the time funds are made available.

Collection fractions
The percentage of a given month's sales collected during the month of sale and each month following the month of sale.

Collection policy
Procedures a firm follows in attempting to collect accounts receivables.

Collection ratio
The ratio of a company's accounts receivable to its average daily sales, which gives the average number of days it takes the company to convert receivables into cash.

Collective wisdom
The combination of all the individual opinions about a stock's or security's value.

Colombo Stock Exchange
Established in 1984, the only public stock exchange of Sri Lanka.

COLT (Continuous on-line trading system)
Computerized OTC traders assistance system that provides for trade entry and position monitoring, among other functions.

Comanager
A bank that ranks just below a lead manager in a syndicated Eurocredit or international bond issue. Comanagers may assist the lead manager bank in the pricing and issue of the instrument.

Combination
Applies to derivative products. Arrangement of options involving two long or two short positions with different expiration dates or strike (exercise) prices.

Combination bond
A bond backed by the government unit issuing it as well as by revenue from the project that is to be financed by the bond.

Combination matching
Also called horizon-matching, a variation of multiperiod immunization and cash flow-matching in which a portfolio is created that is always duration-matched and also cash-matched in the first few years.

Combination strategy
A strategy in which a put and call with different strike prices and the same expiration are either both bought or both sold.

Combined financial statement
A financial statement that merges the assets, liabilities, net worth and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must reconcile investment and capital accounts.  Financial glossary.

Come in
In the context of general equities, a fall in price.

Come out of the trade
In the context of general equities, trader'sposition in a security that results from executing a trade (or the expectations thereof).

Comeout
In the context of general equities, the opening.

COMEX
A division of the New York Mercantile Exchange (NYMEX). Formerly known as the Commodity Exchange, COMEX is the leading US market for metals futures and options trading.

Comfort letter
A letter from an independent auditor included in a preliminary prospectus stating that, while a full audit has not been undertaken, the auditor has done a 'review' sufficient to assure that financial statement information in the preliminary prospectus is correctly prepared to the best of the auditor's knowledge. The auditor in effect states that, had a full audit been done, they are comfortable that the audited financial statements would not be materially different from the ones presented in the preliminary prospectus.  Financial glossary.

Commercial bank
Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and business. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.

Commercial draft
Demand for payment.

Commercial hedgers
Companies that take futures positions in commodities so that they can guarantee prices at which they will buy raw materials or sell their products.

Commercial invoice
Bill for merchandise sold.

Commercial letters of credit
Trade-related agreement that a certain amount of bank funds is available to an entity.

Commercial loan
A short-termloan, typically 90 days, used by a company to finance seasonal working capital needs.

Commercial Mortgage Backed Securities
Similar to MBS but backed by loans secured with commercial rather than residential property. Commercial property includes multi-family, retail, office, etc., They are not standardized so there are a lot of details associated with structure, credit enhancement, diversification, etc., that need to be understood when valuing these instruments.

Commercial paper
Short-term promissory notes either unsecured or backed by assets such as loans or mortgages issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less. They are usually sold, like Treasury bills, at a discount.

Commercial property
Real estate that produces some sort of income-producing property. Financial glossary.

Commercial risk
The risk that a debtor will be unable to pay its debts because of business events, such as bankruptcy.

Commingling
In the context of securities, this involves mixing customer-owned securities with brokerage firm-owned securities. This process is referred to as rehypothecation, which is the use of customers' collateral to secure their loans. This is legal with customer consent, although some securities and collateral must be kept separately.

Commission
The fee paid to a broker to execute a trade, based on number of shares, bonds, options and/or their dollar value. In 1975, deregulation led to the establishment of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock. Also known as a round-turn. Commissions are known as round-turn only in futures trading, since the commission is assessed only after liquidation of the position. Financial glossary.

Commission broker
A broker on the floor of an exchange who acts as agent for a particular brokerage house and buys and sells stocks for the brokerage house on a commission basis.

Commission house
A firm that buys and sells futures contracts for customer accounts.  Financial glossary.

Commission-only compensation
Payment to a financial advisers of only commissions on investments purchased when the client implements the recommended financial plan.

Commitment
Describes a trader'sobligation to accept or make delivery on a futures contract.

Commodities Exchange Center
The location of five New York futures exchanges: Commodity Exchange, Inc. (COMEX); the New York Mercantile Exchange (NYMEX); New York Cotton Exchange, Coffee, Sugar & Cocoa Exchange (CS&CE) and New York Futures Exchange (NYFE). Financial glossary.

Commodity
A commodity is food, metal or another fixed physical substance that investorsbuy or sell, usually via futures contracts. Financial glossary.

Commodity-backed bond
A bond with interest payments tied to the price of an underlying commodity.

Commodity Bundle
One unit of the collection of the complete set of goods produced and sold in the world market.

Commodity Channel Index
An index used in technical analysis. High values mean a potential future correction (downward movement in underlying asset) and low values potentially forecast a rally. Details in Donald Lambert's October 1980 article in Commodities Magazine. Financial glossary.

Commodity futures contract
An agreement to buy a specific amount of a commodity at a specified price on a particular date in the future, allowing a producer to guarantee the price of a product or raw material used in production.

Commodity Futures Trading Commission
An agency created by the US Congress in 1974 to regulate exchange trading in futures.

Commodity indices
Indices measuring the price and performance of physical commodities, often by the price of futures contracts for the commodities that are listed on commodity exchanges.

Commodity paper
A loan or advance secured by commodities.

Commodity Research Bureau
Produces a popular price index of 17 commodities which is often used to track inflationary trends in the economy.

Commodity Trading Advisor
An investment manager that focuses on long and short trading in the futures markets. The trades are often intraday trades. Sometimes referred to as Managed Futures.

Common-base-year analysis
The representing of accounting information over multiple years as percentages of amounts in an initial year.

Common code
A nine-digit identification code issued jointly by CEDEL and Euroclear. As of January 1991 common codes replaced the earlier separate CEDEL and Euroclear codes.

Common factor
An element of return that influences many assets. According to multiple factor risk models, the factors determine correlations between asset returns. Common factors include size, valuation measures such as price to book value ratio and dividend yield, industries and risk indices. Financial glossary.

Common market
An agreement between two or more countries that permits the free movement of capital and labor as well as goods and services.

Common shares
In general, a public corporation has two types of shares, common and preferred. The common shares usually entitle the shareholders to vote at shareholders meetings. The common shares have a discretionary dividend.

Common-size analysis
The representing of balance sheet items as percentages of assets and of income statement items as percentages of sales.

Common-size statement
A statement in which all items are expressed as a percentage of a base figure, useful for purposes of analyzing trends and changing relationship among financial statement items. For example, all items in each year's income statement could be presented as a percentage of netsales.

Common stock
Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Units of ownership of a public corporation with junior status to the claims of secured/unsecured creditors, bondholders and preferred shareholders in the event of liquidation. Financial glossary.

Common stock equivalent
A convertible security that is traded like an equityissue because the optioned common stock is trading above the conversion price.

Common stock fund
A mutual fund investing only in common stock.

Common stock market
The market for trading equities, not including preferred stock.

Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders' equity.

Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity ( book value per share) of a firm. Financial glossary.

Commonwealth Development Corp
A British development finance institute.

Comnmunity Bank
A smaller bank that is regulated by the Office of the Comptroller of Currency (OCC). Currently, there is no official definition of Community Bank, i.e. in terms of asset size.

Community Reinvestment Act (CRA)
Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations.

Companion bonds
A class of a Collateralized Mortgage Obligation (CMO) whose principal is paid off first when the underlying mortgages are prepaid due to falling interest rates. When interest rates rise, there will be lower prepayments of the principal; companion bonds therefore absorb most of the prepayment risk of a CMO.

Company
A proprietorship, partnership, corporation or other form of enterprise that engages in business.

Company doctor
An executive, usually appointed from outside, brought in to turn a company around and make it profitable.

Comparative advantage
Theory suggesting that specialization by countries can increase worldwide production.

Comparative credit analysis
Comparing a firm to others that have a desired target debt rating in order to deduce an appropriate financial ratio target.

Comparative statements
Financial statements for different periods, that allow the comparison of figures to illustrate trends in a company's performance.

Comparison
Short for "comparison ticket," a memorandum between two brokers that confirms the details of a transaction to be carried out.

Comparison universe
A group of money managers of similar investment style used to assess relative performance of a portfolio manager. Financial glossary.

Compensation trade
The form of countertrade in which an incoming investment is repaid from the revenues generated by that investment.

Compensating balance
An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided.

Compensation
Arrangement under which the delivery of goods to a party is paid for by buying back a certain amount of the product from the recipient of the goods.

Compensatory Financing Facility
Entity that attempts to reduce the impact of export instability on country economies.

Competence
Sufficient ability or fitness for one's needs. The necessary abilities to be qualified to achieve a certain goal or complete a project.

Competition
Intra - or intermarket rivalry between or among businesses trying to obtain a larger piece of the same market share.

Competition ahead
Often used in risk arbitrage. Situation whereby another OTC market maker has transacted with investment bank at the stated market level before the bid/offer has been made.

Competitive bidders
One of two categories of bidders on Treasury securities: competitive and noncompetitive. Competitive bidders are usually financial institutions.

Competitive bidding
A securities offering process in which securities firms submit competing bids to the issuer for the securities the issuer wishes to sell. Financial glossary.

Competitive offering
An offering of securities through competitive bidding.

Complementary Financing
A type of financing in which different lenders agree to fund under similar yet parallel documentation and a pro rata security package.

Complete
In the context of general equities, to fill an order.

Complete capital market
A market in which there is a distinctive marketable security for each and every possible outcome.

Complete portfolio
The entire portfolio, including risky and risk-free assets.

Completion
In the context of project financing, occurs after a Completion Test, when the project's cash flows become the primary method of repayment. Prior to completion, the primary source of repayment is usually from the sponsors or from the turnkey contractor.

Completion bonding
Insurance that a construction contract will be completed successfully.

Completion risk
The risk that a project will not be brought into operation successfully or be able to pass its completion test.

Completion test
A test of the project's ability to perform as planned and generate the expected cash flows. After the completion test, the project can move from recourse to project financing.

Completion undertaking
An undertaking either  to complete a project so that it meets certain specified performance criteria on or before a certain specified date or  to repay project debt if the completion test cannot be met.

Complexity Theory
The theory that processes with a large number of seemingly independent agents can spontaneously organize themselves into a coherent system. Financial glossary.

Compliance department
A department in all organized stock exchanges to ensure that all companies, traders and brokerage firms comply with Securities and Exchange Commission and exchange rules and regulations.

Composition
Voluntary arrangement to restructure a firm's debt, under which payment is reduced.

Compound Annual Growth Rate
Annual return calculated based on each year's previous balances where each previous balance includes both the original principal and all interest accrued from prior years. Best defined by example. If you invest $100 today and make 5% in the first year and reinvest ($105) and make 8% in the second year, the compound annualgrowth rate is 6.489%. The calculation is $100x1.05x1.08=$113.4 which is what you end up with at the end of year two. The average return is [square root(113.4/100) -1]= 0.06489 or 6.489%. Note 1. If we had three compounding periods we would take the cubic root (power of 1/3). Note 2. If we had invested at exactly 6.489 in both periods, we get $100x1.06489x1.06489=$113.4. Note 3. The example is directed to a return - but CAGR could be applied to earnings growth, GDP growth, etc. Financial glossary.

Compound interest
Interest paid on previously earned interest as well as on the principal.

Compound option
Option on an option.

Compounding
The process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period.

Compounding frequency
The number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4.

Compounding period
The length of the time period that elapses before interest compounds (a quarter in the case of quarterly compounding).

Comprehensive due diligence investigation
The investigation of a firm's business in conjunction with a securities offering to determine whether the firm's business and financial situation and its prospects are adequately disclosed in the prospectus for the offering. Financial glossary.

Comprehensive Income
Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events from non-owner sources. It includes all non-owner changes in equity (in contrast to net income which does not include some changes in equity). Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. For fiscal years beginning after December 15, 1997, SFAS 130 requires the disclosure of both net income and a more 'comprehensive' measure of income which includes four items recorded as owners' equity under previous FASB pronouncements: adjustments to unrealized gains and losses on available-for-sale marketable securities (SFAS 115), foreign currency translation adjustments (SFAS 52), minimum required pension liability adjustments (SFAS 87) and changes in the market values of certain futures contracts qualifying as hedges (SFAS 80). Financial glossary.

Comptroller
The corporate manager responsible for the firm's accounting activities. Sometimes referred to as the contoller (which means the same thing).

Comptroller of the Currency
A government official, appointed by the President of the United States, who keeps control over all national banks and receives reports from the banks at least quarterly, to be published in newspapers.

Computerized market timing system
A computer system that compiles large amounts of trading data in search of patterns and trends to make buy and sell recommendations.

Concave
Property that a curve is below a straight line connecting two end points. If the curve falls above the straight line, it is called convex.

Concentration account
A single centralized account into which funds collected at regional locations (lock boxes) are transferred.

Concentration Banks
A small number of large banks a firm contracts with to periodically collect the firm's deposit balances from a group of smaller banks.

Concentration services
Movement of cash from different lock box locations into a single concentration account from which disbursements and investments are made.

Concession
The per-share or per- bond compensation of a selling group for participating in a corporate underwriting. Financial glossary.

Concession agreement
An understanding between a company and the host government that specifies the rules under which the company can operate locally.

Conditional call
Applies mainly to convertible securities. Circumstances under which a company can effect an earlier call, usually stated as percentage of a stock's trading price during a particular period, such as 140% of the exercise price during a 40-day trading span.

Conditional call options
A protective guarantee that, in the event a high yield bond is called, the issuing corporation will replace the bond with a non callable bond of the same life and terms as the bond that is being called. Financial glossary.

Conditional sales contracts
Similar to equipment trust certificates, except that the lender is either the equipment manufacturer or a bank or finance company to which the manufacturer has sold the conditional sales contract.

Condor
Applies to derivative products. Option strategy consisting of both puts and calls at different strike prices to capitalize on a narrow range of volatility. The payoff diagram takes the shape of a bird.

Conduit theory
A theory that because investment companies are merely conduits for capital gains, dividends and interest, which are in fact passed through to shareholders, the investment company should not be taxed at the corporate level. Financial glossary.

Confidence indicator
A measure of investors' faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.

Confidence letter
Statement by an investment bank that it is highly confident that the financing for its client/acquirer'stakeover can and will be obtained. Often used in risk arbitrage. Financial glossary.

Confidence level
In risk analysis, the degree of assurance that a specified failure rate is not exceeded. Financial glossary.

"Confirm me out"
Used for listed equity securities. "Go to the floor and check with the specialist or floor broker that my previously activeorder has been canceled and was not executed". One does not have to honor any trade reported after being given a "firm out". Financial glossary.

Confirmation
The written statement that follows any "trade" in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

Confirmed Letter of Credit
A letter of credit which a bank other than the bank that opened it agrees to honor as though they had themselves issued it. This additional confirmation is in addition to the obligation of the bank which issued the letter of credit.

Confirming Bank
The bank which has confirmed a letter of credit opened by another bank. Financial glossary.

Conflict between bondholders and stockholders
Bondholders and stockholders may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment and underinvestment. Protective covenants in bond documents work to resolve these conflicts.

Conforming loans
Mortgage loans that meet the qualifications of Freddie Mac or Fannie Mae, which are bought from lenders and issued as pass-through securities.

Conglomerate
A firm engaged in two or more unrelated businesses.

Conglomerate merger
A merger involving two or more firms that are in unrelated businesses.

Consensus forecast
The mean of all financial analysts forecasts for a company.

Consignee
The party named in the bill of lading to whom delivery is promised and/or title is passed.

Consignment
Transfer of goods to a seller while title to the merchandise is retained by the owner.

Consol
A government bond with no maturity . Popular in Great Britain. The formula for valuing these bonds is simple. The consol payment divided by yield to maturity is the price of the bond.

Consolidated financial statement
A financial statement that shows all the assets, liabilities and operating accounts of a parent company and its subsidiaries.

Consolidated mortgage bond
A bond that covers several units of property, sometimes refinancing mortgages on the properties. Financial glossary.

Consolidated tape
Used for listed equity securities. Combined ticker tapes of the NYSE and the curb. Network A covers the NYSE-listed securities and is used to identify the originating market. Network B does the same for AMEX-listed securities and also reports on securities listed on regional stock exchanges.

Consolidated tax return
A tax return combining the reports of affiliated companies, that are at least 80% owned by a parent company.

Consolidation
The combining of two or more firms to form an entirely new entity.

Consolidation loan
A loan that is used to combine and finance payments on other loans. Financial glossary.

Consortium
A group of companies that cooperate and share resources in order to achieve a common objective.

Consortium banks
A merchant banking subsidiary set up by several banks that may or may not be of the same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.

Constant dollar
Condition in which inflation or escalation is not applicable. Prices and costs are deescalated or reescalated to a single point in time. Financial glossary.

Constant-dollar plan
Method of purchasing securities by investing a fixed amount of money at set intervals. The investor buys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost.

Constant-growth model
Also called the Gordon-Shapiro model, an application of the dividend discount model that assumes (a) a fixed growth rate for future dividends, and (b) a single discount rate.

Constant ratio plan
Maintaining a predetermined ratio between stock and fixed income investments through regular adjustments of distribution of funds into different investments.  Financial glossary.

Constant yield method
Allocation of annual interest on a zero-coupon security for income tax use.

Construction loan
A short-term loan to finance building costs.

Constructive receipt
The date a taxpayer receives dividends or other income, for use in the determination of taxes. Financial glossary.

Consular Invoice
A document prepared by the shipper and certified in the country of origin by a consul of the country of importation. It shows the transaction details and origin of the goods.

Consumer Advisory Council
A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice. Financial glossary.

Consumer credit
Credit a firm grants to consumers for the purchase of goods or services. Also called retail credit.

Consumer Credit Protection Act of 1968
Federal legislation establishing rules for the disclosure of the terms of a loan to protect borrowers.

Consumer debenture
An investment note issued directly to the public by a financial institution.

Consumer durables
Consumer products that are expected to last three years or more, such as an automobile or a home appliance.

Consumer goods
Goods not used in production but bought for personal or household use such as food, clothing and entertainment.

Consumer interest
Interest paid on consumer loans; e.g. interest on credit cards and retail purchases. Financial glossary.

Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of US inflation. The US Department of Labor publishes the CPI every month.

Contagion
Excess correlation of delivering or bond returns. For example, under usual conditions we might observe a certain level of correlation of market returns. A period of contagion would be associated with much higher-than-expected correlation. Some examples are the conjectured contagion in East Asian markets beginning in July 1997 when the Thai currency devalued and the impact across many emerging markets of the Russian default. Contagion is difficult to identify because you need some sort of measure of the expected correlation. It is complicated because correlations are known to change through time, for example, see Erb, Harvey and Viskanta's article in the 1994 Financial Analysts Journal. In periods of negative returns, correlations (and volatility) are known to increase, so what might appear to be excessive may not be contagion. Financial glossary.

Contango
A market condition in which futures prices are higher in the distant delivery months.

Contingency
An additional amount or percentage added to any cash flow item (ie. Capex). Care is needed to ensure it is either to be spent or to remain as a cushion.

Contingency graph
A plot of the net profit to a speculator in currency options under various exchange rate scenarios.

Contingency order
In the context of general equities, order to buy one security, if the trader can sell another, usually given that certain price limits or conditions reach a certain level. Swap, switch order.

Contingent
In context of liabilities, those liabilities that do not yet appear on the balance sheet (ie. guarantees, supports, lawsuit settlements). For support or recourse, the trigger may occur at any time in the future.

Contingent claim
A claim that can be made only if one or more specified outcomes occur.

Contingent conversion trigger
Used in the context of convertible instruments. The price of the stock must exceed the trigger price before the bond holder can convert to common stock at a pre-established conversion price. The trigger price exceeds the conversion price. In addition, after a certain number of years, the convertible instrument usually specifies that both the conversion price and the contingent conversion trigger will increase every year by, for example, a rate equal to LIBOR. Financial glossary.

Contingent deferred sales charge
The formal name for the load of a back-end load fund.

Contingent immunization
An arrangement in which the money manager pursues an active bond portfolio strategy until an adverse investment experience drives the then-available potential return down to the safety net level. When that point is reached, the money manager is obligated to pursue an immunization strategy to lock in the safety-net level return.

Contingent order
An order which can be executed only if another event occurs; i.e. "sell Oct 45 call 7-1/4 with stock 52 or lower".

Contingent pension liability
Under ERISA, a firm is liable to its pension plan participants for up to 39% of the net worth of the firm. Financial glossary.

Contingent Voting Power
Enables preferred stockholders to vote when the company fails to satisfy the agreement between itself and the preferred stockholders.

Continuous compounding
The process of accumulating the time value of money forward in time on a continuous or instantaneous, basis. Interest is earned constantly and at each instant, the interest that accrues immediately begins earning interest on itself.

Continuous net settlement
Method of securities clearing and settlement using a clearing house, which matches transactions to securities available, resulting in one net receive or deliver position at the end of the day.

Continuous random variable
A random value that can take any fractional value within specified ranges, as contrasted with a discrete variable.

Contra broker
The broker on the buy side of a sell order or the sell side of a buy order.

Contract
A term of reference describing a unit of trading for a financial or commodity future. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange.

Contract month
The month in which futures contracts may be satisfied by making or accepting a delivery.

Contractual Claim
An amount that by legal agreement must be paid periodically to the buyer of a security; contractual claim may also specify the time at which the principal must be repaid and other details.

Contractual Intermediary
Holder of an indirect claim through a legal agreement that specifies that the individual must make periodic, fixed payments to the intermediary in exchange for the right to receive payments from the intermediary in the future. Financial glossary.

Contractual plan
A plan in which fixed dollar amounts of mutual fund shares are purchased through periodic investments, usually featuring some sort of additional incentive for the fixed period payments.

Contramarket stock
In the context of general equities, stock that tends to go against the trend of the market as a whole, such as a commodities-related stock or one in an industry out of favor with investors in a bull market.

Contrarian
An investment style that leads one to buy assets that have performed poorly and sell assets that have performed well. There are two possible reasons this strategy might work. The first is a mean-reversion argument; that is, if the asset has deviated from its usual level, it should eventually return to that usual level. The second reason has to do with overreaction. Investors might have overreacted to bad news sending the asset price lower than it should be. Financial glossary.

Contrarian investing
Ignoring market trends by buying securities that the investor considers undervalued and out of favor with other investors.

Contribution
Money placed in an individual retirement account (IRA), an employer-sponsored retirement plan or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account.

Contribution margin
The difference between variable revenue and variable cost.

Control
50% of the outstanding votes plus one vote.

Control Limits
The upper and lower limits on the acceptable level of cash that minimizes the sum of the opportunity cost of excessive cash and the cost of marketable security transactions.

Control parameters
In a nonlinear dynamic system, the coefficient of the order parameter; the determinant of the influence of the order parameter on the total system.

Control stock
The shares owned by the controlling shareholders of a corporation. Sometimes refers to stock that has voting rights rather than stock that carries no voting rights. In a situation where all stock has voting rights, it sometimes refers to the shareholdings of one investors or a group of investors that effectively control the firm.

Controlled commodities
Commodities regulated by the Commodities Exchange Act of 1936 in order to prevent fraud and manipulation in commodities futures markets.

Controlled disbursement
A service that provides for a single presentation of checks each day (typically in the early part of the day).

Controlled foreign corporation
A foreign corporation whose voting stock is more than 50% owned by US stockholders, each of whom owns at least 10% of the voting power.

Controller
The corporate manager responsible for the firm's accounting activities. Sometimes referred to as the comptroller (which means the same thing).

Convenience yield
The extra advantage that firms derive from holding the commodity rather than a future position. Financial glossary.

Convention statement
An annual statement filed by a life insurance company in each state where it does business in compliance with that state's regulations. The statement and supporting documents show, among other things, the assets, liabilities and surplus of the reporting company.

Conventional mortgage
A loan based on the credit of the borrower and on the collateral for the mortgage.

Conventional option
An option contract arranged on the trading floor and traded regularly.

Conventional pass-throughs
Also called private-label pass-throughs, any mortgage pass-through security not guaranteed by government agencies.

Conventional project
A project with a negative initial cash flow (cash outflow), which is expected to be followed by one or more future positive cash flows (cash inflows).

Convertible
A financial instrument that can be exchanged for another security or equity interest at a pre-agreed time and exchange ratio. Financial glossary.

Convertible Arbitrage
In the context of hedge funds, a style of management that involves the simultaneous purchase of a convertible bond and the short sale of shares of the underlying stock. Interest rate risk may or may not be hedged. Financial glossary.

Convergence
The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is usually higher because of time value. But as the contract nears expiration and time value decreases, the futures price and the cash price converge.

Conversion
In the context of securities, refers to the exchange of a convertible security such as a bond into stock. Financial glossary.

Conversion factors
Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Conversion feature
Specification of the right to transform a particular investment to another form of investment, such as switching between mutual funds or converting preferred stock or bonds to common stock.

Conversion parity/value
Applies mainly to convertible securities. Common stock price at which a convertible bond can become exchangeable for common shares of equal value; value of a convertible bond based solely on the market value of the underlying equity. Par value plus conversion ratio.

Conversion Period
The time period during which an investor can exchange a convertible security for common stock. Financial glossary.

Conversion premium
The extent by which the conversion price of a convertible security exceeds the prevailing common stock price at the time the convertible security is issued. In general usage, the conversion premium is the amount by which the convertible security trades above its conversted value. For example, if a $1,000 par bond is trading at $1,100, it is convertible into 50 shares and the shares are trading at $21, the converted value is 50 X 20.50 = $1,025 and the conversion premium is $75.

Conversion price
Applies mainly to convertible securities. Dollar value at which convertible bonds, debentures or preferred stock can be converted into common stock, as specified when the convertible is issued.

Conversion ratio
Applies mainly to convertible securities. Relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred stock when a conversion takes place. It is determined at the time of issue and is expressed either as a ratio or as a conversion price from which the ratio can be figured by dividing the par value of the convertible by the conversion price.

Conversion value
The value of a convertible security if it is converted immediately. Also called parity value or converted value.

Convertibility
The ability to exchange a currency without government restrictions or controls.

Convertible adjustable preferred stock (Caps)
The interest rate on caps is adjustable and is pegged to Treasury security rates. They can be exchanged at par value for common stock or cash after the next period's dividend rates are revealed. Financial glossary.

Convertible arbitrage
A practice, usually of buying a convertible bond and shorting a percentage of the equivalent underlying common shares, to create a positive cash flow position (with expected returns above the riskless rate) in a static environment and benefit from capital appreciation should the convertible's premium rise. This form of investing is far from riskless and requires constant monitoring.

Convertible bond
General debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.

Convertible eurobond
A eurobond that can be converted into another asset, often through exercise of attached warrants. Financial glossary.

Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock.

Convertible 100
Goldman Sachs index of the 100 convertibles of greatest institutional importance. Weighted by issue size, it measures the performance of its components against that of their underlying common stock and against other broad market indexes as well.

Convertible preferred stock
Preferred stock that can be converted into common stock at the option of the holder.

Convertible price
The contractually specified price per share at which a convertible security can be converted into shares of common stock.

Convertible security
A security that can be converted into common stock at the option of the security holder; includes convertible bonds and convertible preferred stock.

Convex
Curved, as in the shape of the outside of a circle. Usually referring to the price/required yield relationship for option-free bonds.

Convexity
Property that a curve is above a straight line connecting two end points. If the curve falls below the straight line, it is called concave.

Cook the books
To deliberately falsify the financial statements of a company. This is an illegal practice.

Cooling-off period
The period of time between the filing of a preliminary prospectus with the Securities and Exchange Commission and the actual public offering of the securities.

Cooperative
An organization owned by its members. Examples are agriculture cooperatives that assist farmers in selling their products more efficiently and apartment buildings owned by the residents who have full control of the property.

Copenhagen Stock Exchange
The only securities exchange in Denmark. It features electronic trading of stocks, bonds, futures and options.

Core capital
The capital required of a thrift institution, which must be at least 2% of assets to meet the rules of the Federal Home Loan Bank.

Core competence
Primary area of expertise. Narrowly defined fields or tasks at which a company or business excels. Primary areas of specialty.

Cornering the market
Purchasing a security or commodity in such volume as to achieve control over its price. An illegal practice. Financial glossary.

C Corporation
A corporation that elects to be taxed as a corporation. The C corporation pays federal and state income taxes on earnings. When the earnings are distributed to the shareholders as dividends, this income is subject to another round of taxation (shareholder's income). Essentially, the C corporations' earnings are taxed twice. In contrast, the S corporation's earnings are taxed only once. Financial glossary.

Corporate acquisition
The acquisition of one firm by another firm.

Corporate bonds
Debt obligations issued by corporations.

Corporate charter
A legal document creating a corporation.

Corporate equivalent yield
A comparison of the after-tax yield of government bonds selling at a discount and corporate bonds selling at par.

Corporate finance
One of the three areas of the discipline of finance. It deals with the operation of the firm (both the investment decision and the financing decision) from the firm's point of view.

Corporate financial management
The application of financial principles within a corporation to create and maintain value through decision-making and proper resource management.

Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both long-and short-term financial plans.

Corporate financing committee
A committee of the NASD that reviews underwriters' SEC-required documents to ensure that proposed markups are fair and in the public interest.

Corporate income fund
A unit investment trust featuring a fixed portfolio of high-grade securities and other investments, usually with monthly distribution of income.

Corporate processing float
The time that elapses between receipt of payment from a customer and the deposit of the customer's check in the firm's bank account; the time required to process customer payments.

Corporate repurchase
Active buying by a corporation of its own stock in the marketplace. Reasons for repurchase include putting idle cash to use, raising EPS, creating support for a stock price, increasing internal control (shark repellant) or stock for ESOP or pension plans. Repurchase is subject to rules, such as that buying must be on a zero minus or a minus tick, after the opening and before 3:30 p.m. Financial glossary.

Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes debt a cheaper financing method.

Corporate taxable equivalent
Rate of return required on a par bond to produce the same after-tax yield to maturity that the quoted premium or discount bond would generate.

Corporate Trust
The function of servicing and maintaining records for debt securities issued by a corporation.

Corporation
A legal entity that is separate and distinct from its owners. A corporation is allowed to own assets, incur liabilities and sell securities, among other things. Financial glossary.

Correction
Reverse movement, usually downward, in the price of an individual stock, bond, commodity or index. If prices have been rising on the market as a whole and then fall dramatically This is known as a correction within an upward trend.

Correlation
Statistical measure of the degree to which the movements of two variables (stock/option/convertible prices or returns) are related.

Correlation coefficient
A standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the product of the standard deviations of two variables.

Correlation Dimension
An estimate of the Fractal Dimension which measures the probability that two points chosen at random will be within a certain distance of each other and examines how this probability changes as the distance is increased. White noise will fill its space since its components are uncorrelated and its correlation dimension is equal to whatever dimension it is placed in. A dependent system will be held together by its correlations and retain its dimension whatever embedding dimension it is placed in, as long as it is greater than its fractal dimension.

Correlation Integral
The probability that two points are within a certain distance from one another. Used in the calculation of the correlation dimension. Financial glossary.

Correspondent
A financial organization that performs services (acts as an intermediary) in a market for another organization that does not have access to that market.

Correspondent bank
Bank that accepts deposits of and performs services for, another bank (called a respondent bank); in most cases, the two banks are in different cities. Financial glossary.

Cosigner
A term referring to a person, other than the principal borrower, who signs for a loan. The cosigner assumes equal liability for the loan.

Cost
The opposite of revenue. An expense that reflects the price of purchasing goods, services and financial instruments. A cash cost means that cash is given up today to the purchase. Also, the purchase price of an investment, which is compared to the sale proceeds to determine capital gain or loss. Financial glossary.

Cost accounting
A branch of accounting that provides information to help the management of a firm evaluate production costs and efficiency. Financial glossary.

Cost and Freight
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. This should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel.

Cost basis
The original price of an asset, used to determine capital gains.

Cost-benefit ratio
The net present value of an investment divided by the investment's initial cost.

Cost of capital
The required return for a capital budgeting project.

Cost of carry
Out-of-pocket costs incurred while an investor has an investment position. Examples include interest on long positions in margin account, dividend lost on short margin positions and incidental expenses.

Cost-of-carry market
Applies to derivative products. Futures contracts trade in a "cost-of-carry market" where the underlying commodity can be stored, insured and converted into the future easily and inexpensively. Arbitrageurs, because of the ease of switching from the spot commodity to futures, will keep these markets in line with prevailing interest rates.

Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of charge but agree to pay all operating and financing charges of the project.

Cost of equity
The required rate of return for an investment of 100% equity.

Cost of funds
Interest rate associated with borrowing money.

Cost of goods sold
The total cost of buying raw materials and paying for all the factors that go into producing finished goods.

Cost of lease financing
A lease's internal rate of return.

Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital raised from limited partners.

Cost Insurance and Freight
Seller is responsible for the payment of freight to carry goods to a named destination, as agreed with the buyer. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. This term should be used with ocean shipments only, as the point where risk and responsibility pass from seller to buyer is the rail of the carrying vessel. Financial glossary.

"Cost me"
Refers to over-the-counter trading. "The price I must pay to obtain the securities you wish to buy is [$]". Usually, a standard markup is then applied for resale to this buyer.

Cost-plus contract
A contract in which the selling price is based on the total cost of production plus a fixed percentage or fixed amount.

Cost-push inflation
Inflation caused by rising prices, usually from increased raw material or labor costs that push up the costs of production.

Cost records
The records maintained by an investor of the prices at which securities transactions are made, so that capital gains can be computed.

Cost Recovery Period
The number of years it takes to fully depreciate a capital asset. This time period is based on classification of the depreciable life of an asset.

Council of Economic Advisers
A group of economists appointed by the President of the United States to provide economic counsel and help prepare the president's budget presentation to Congress.

Countercyclical stocks
Stocks whose price tends to rise when the economy is in recession or the market is bearish and vice versa.

Counterpart items
In the balance of payments, counterpart items are analogous to unrequited transfers in the current account. They arise through the double-entry system in balance of payments accounting and refer to adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs and revaluation of the various components of total reserves.

Counterparties
The parties on either side of an interest rate swap or a currency, equity or commodity swap or to an options or futures position.

Counterparty
The other participant, including intermediaries, in a swap or contract.

Counterparty risk
The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.

Counterpurchase
Exchange of goods between two parties under two distinct contracts expressed in monetary terms. Financial glossary.

Country allocations
The percentages of a fund's net assets distributed to securities of various countries. These percentages serve as an indicator of a fund's diversification and its vulnerability to fluctuations in foreign financial markets or currency exchange rates.

Country beta
Covariance of a national economy's rate of return and the rate of return of the world economy divided by the variance of the world economy.

Country diversification
Investment of a global or international portfolio's assets in securities of various countries. Financial glossary.

Country economic risk
Developments in a national economy that can affect the outcome of an international financial transaction.

Country financial risk
Centers around the ability of a national economy to generate enough foreign exchange to meet payments of interest and principal on its foreign debt.

Country risk
The general level of political, financial, and economic uncertainty in a country which impacts the value of the country's bonds and equities.  Financial glossary.

Country selection
A type of active international management that measures the contribution to performance attributable to investing in the better-performing stock markets of the world.

Coupon
The contractual interest obligation a bond or debenture issuer covenants to pay to its debtholders.

Coupon bond
A bond featuring coupons that must be presented to the issuer in order to receive interest payments. Financial glossary.

Coupon equivalent yield
True interestcost expressed on the basis of a 365-day year.

Coupon pass
Canvassing by the desk of primary dealers to determine the inventory and maturities of their Treasury securities. The desk then decides whether to buy or sell certain issues (coupons) in order to add or withdraw reserves.

Coupon payments
A bond's interest payments. Financial glossary.

Coupon rate
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.

Covariance
A statistical measure of the degree to which random variables move together. A positive covariance implies that one variable is above (below) its mean value when the other variable is above (below) its mean value.

Covenant
An agreed action to be undertaken (Positive) or not done (Negative). A breach of a covenant is a default.

Cover
The amount above UNITY of a debt service ratio.

Coverage initiated
Usually refers to the fact that analysts begin following a particular security. This usually happens when there is enough trading in it to warrant attention by the investment community.

Coverage ratios
Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and lease obligations, including the interest coverage ratio and the fixed-charge coverage ratio.

Covered
A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put. Financial glossary.

Covered call
A shortcall option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered call writing strategy
A strategy that involves writing a call option on securities that the investor owns.

Covered foreign currency loan
A loan denominated in a currency other than that of the borrower's home country, for which repayment terms are prearranged through the use of a forward currency contract.

Covered interest arbitrage
Occurs when a portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.

Covered Interest Rate Parity
The principle that the yields from interest-bearing foreign and domestic investments should be equal when the currency market is used to predetermine the domestic currency payoff from a foreign investment.

Covered option
Option position that is offset by an equal and opposite position in the underlying security.

Covered position
Use of an option in a trading strategy in the underlying asset which is already owned. Financial glossary.

Covered put
A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise price of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option. Financial glossary.

Covered straddle
An option strategy in which one call and one put with the same strike price and expiration are written against 100 shares of the underlying stock. In actually, this is not a "covered" strategy because assignment on the short put would require purchase of stock on margin. This method is also known as a covered combination.

Covered straddle write
The term used to describe the strategy in which an investor owns the underlying security and also writes a straddle on that security. This is not really a covered position.

Covered writer
An investor who writes options only on stock that he or she owns, so that option premiums may be collected.

Covering
Using forward currency contracts to predetermine the domestic currency amount of an expected future foreign receipt or payment. Also, the buying back of a short position.

CPI
A measure of inflation.

Cramdown
The ability of the bankruptcy court to confirm a plan of reorganization over the objections of some classes of creditors.

Cram-down deal
A merger in which stockholders are forced to accept undesirable terms, such as junk bonds instead of cash or equity, due to the absence of any better alternatives.

Crash
Dramatic loss in market value. The last great crash was in 1929. Some refer to October 1987 as a crash but the market return for the entire year of 1987 was positive.

Crawling peg
An automatic system for revising the exchange rate. It involves establishing a par value around which the rate can vary up to a given percent. The par value is revised regularly according to a formula determined by the authorities.

Credible signal
A signal that provides accurate information; a signal that can distinguish among senders.

Credit
Money loaned.

Credit analysis
Evaluating information on companies and bond issues in order to estimate the ability of the issuer to live up to its future contractual obligations.

Credit balance
The surplus in a cash account with a broker after purchases have been paid for, plus the extra cash from the sale of securities.

Credit bureau
An agency that researches the credit history of consumers so that creditors can make decisions about granting of loans.

Credit card
Any card, plate or coupon book that may be used repeatedly to borrow money or buy goods and services on credit. Financial glossary.

Credit enhancement
The purchase of the financial guarantee of a large insurance company to raise funds. In the context of project financing, the issuance of a guarantee or additional collateral to reinforce the credit strength of a project financing. Also, the reduction of counterparty risk on a swap transaction through such measures as bilateral netting. Financial glossary.

Credit history
A record of how a person has borrowed and repaid debt.

Credit insurance
Insurance against abnormal losses due to unpaid accounts receivable.

Credit linked security
A note whose cash flow depends upon a credit event or credit measure of a referenced entity or asset such as default, credit spread or rating change. The manager would purchase such a note to hedge against possible down grades or loandefaults that would guarantee payment into the portfolio of the manager even if moneys on referenced assets are reduced.

Credit period
The length of time for which a firm's customer is granted credit.

Credit Policy Delay
The period between the sale of goods for a credit and the payment for those goods. This lag is determined largely by the selling firm's credit policy.

Credit Rating Agencies
Firms that compile information on and issue public credit ratings for a large number of companies.

Credit Standards
The guidelines a company follows to determine whether a credit applicant is creditworthy.

Credit Terms
The conditions under which credit will be extended to a customer. The components of credit terms are: cash discount, credit period, net period.

Credit quality
A measure of a bond issuer's ability to repay interest and principal in a timely manner. Rating agencies assign letter designations such as AAA, AA and so forth. The lower the rating, the higher the probability of default.

Credit rating
An evaluation of an individual's or company's ability to repay obligations or its likelihood of not defaulting.

Credit risk
The risk that an issuer of debt securities or a borrower may default on its obligations or that the payment may not be made on a negotiable instrument.

Credit scoring
A statistical technique that combines several financial characteristics to form a single score to represent a customer's credit worthiness.

Credit spread
Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a "credit spread."

Credit union
A not-for-profit institution that is operated as a cooperative and offers financial services such as low-interestloans to its members. Financial glossary.

Credit watch
A warning by a bond rating firm indicating that a company's credit rating may change after the current review is concluded. Financial glossary.

Credit worthiness
The condition in which the risk of default on a debt obligation by that entity is deemed low. Financial glossary.

Crediting rate
The interest rate offered on an investment type insurance policy.

Creditor
Lender of money.

Creditor's committee
A group representing firms that have claims on a company facing bankruptcy or extreme financial difficulty.

Creeping expropriation
The act of a government squeezing a project by taxes, regulation, access or changes in law.

Creeping tender offer
The process by which a group attempting to circumvent certain provisions of the Williams Act gradually acquires shares of a target company in the open market.

CREST
CREST is CrestCo's real-time settlement system for UK and Irish shares and other corporate securities. CrestCo has provided settlement systems for government bonds and money market instruments in the UK since 1990. Financial glossary.

Crisp Sets
The fuzzy set term for traditional set theory. That is, an object either belongs to a set or does not.

Critical Levels
Values of control parameters where the nature of a nonlinear dynamic system changes. The system can bifurcate or make the transition from stable to turbulent behavior. An example is the straw that breaks the camel's back.

Cross
Securities transaction in which the same broker acts as agent for both sides of the trade; a legal practice only if the broker first offers the securities publicly at a price higher than the bid.

Cross border factoring
Concluding a transaction by a network of factors across borders. The exporter's factor can contact correspondent factors in other countries to handle the collection of accounts receivable.

Cross border risk
Describes the volatility of returns on international investments caused by events associated with a particular country as opposed to events associated solely with a particular economic or financial agent. Financial glossary.

Cross Collateral
An agreement among project participants to pool collateral, to allow recourse to each other's collateral.

Cross default
A provision under which default on one debt obligation triggers default on another debt obligation.

Cross hedging
Applies to derivative products. Hedging with a futures contract that is different from the underlying being hedged. Use of a hedging instrument different from the security being hedged. Hedging instruments are usually selected to have the highest price correlation to the underlying.

Cross holdings
The holding by one corporation of shares in another firm. One needs to allow for cross-holdings when aggregating capitalizations of firms. Ignoring cross-holdings leads to double-counting.

Cross rates
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency. Foreign exchange rate between two currencies other than the US dollar, the currency in which most exchanges are usually quoted. Financial glossary.

Cross-sectional analysis
Assessment of relationships among a cross-section of firms, countries or some other variable at one particular time.

Cross-Sectional Ratio Analysis
A method of analysis that compares a firm's ratios with some chosen industry benchmark. The benchmark usually chosen is the average ratio value for all firms in an industry for the time period under study.

Cross-sectional approach
A statistical methodology applied to a set of firms at a particular time.

Cross-share holdings
Often used in risk arbitrage. Corporations' or governments' equity share ownership in another corporation's shares.

Cross-border bonds
Bonds that firm sissue in the international market. Financial glossary.

Crossed market
In the context of general equities, happens when the inside market consists of a highest bid price that is higher than the lowest offer price.

Crossed trade
The prohibited practice of offsetting buy and sell orders without recording the trade on the exchange, thus not allowing other traders to take advantage of a more favorable price.

Crossover rate
The return at which two alternative projects have the same net present value.

Crowd trading
Used for listed equity securities. Group of exchange members with a defined area of function tending to congregate around a trading post pending execution of orders. Includes specialists, floor traders, odd-lotdealers and other brokers as well as smaller groups with specialized functions.  Financial glossary.

Crowding out
Heavy federal borrowing that drives interest rates up and prevents businesses and consumers from borrowing when they would like to.

Crown jewel
A particularly profitable or otherwise particularly valuable corporate unit or asset of a firm. Often used in risk arbitrage. The most desirable entities within a diversified corporation as measured by asset value, earning power and business prospects; in takeover attempts, these entities typically are the main objective of the acquirer and may be sold by a takeover target to make the rest of the company less attractive.

Crown Law
A law derived from English law (ie. England, Ireland, Canada, PNG, Australia, Hong Kong, Singapore, India, Malaysia).

Cum dividend
With dividend; said of a stock whose buyer is eligible to receive a declared dividend. Stocks are usually "cum dividend" for trades made on or before the third trading day preceding the record date, when the register of eligible holders is closed for that dividend period.  Financial glossary.

Cum rights
With rights.

Cumulative abnormal return
Sum of the differences between the expected return on a stock (systematic risk multiplied by the realized market return) and the actual return often used to evaluate the impact of news on a stock price.

Cumulative dividend feature
A requirement that any missed preferred or preference stockdividends be paid in full before any dividend payment on common shares is made.

Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely dividend payments.

Cumulative probability distribution
A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on.

Cumulative total return
The actual performance of a fund over a particular period.

Cumulative Translation Adjustment (CTA) account
An entry in a translated balance sheet in which gains and/or losses from translation have been accumulated over a period of years. The CTA account is required under the FASB No. 52 rule.

Cumulative voting
A system of voting for directors of a corporation in which shareholder's total number of votes is equal to the number of shares held times the number of candidates.

The Curb
Another name for the American Stock Exchange (AMEX).

Currency appreciation
An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.

Currency arbitrage
Taking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market.

Currency basket
The value of a portfolio of specific amounts of individual currencies, used as the basis for setting the market value of another currency. It is also referred to as a currency cocktail.

Currency Board
Entity charged with maintaining the value of a local currency with respect to some other specified currency. Financial glossary.

Currency call option
Contract that gives the holder the right to purchase a specific currency at a specified price (exchange rate) within a specific period of time.

Currency Carry Trade
A carry trade where you borrow and pay interest in order to buy something else that has higher interest. For currencies, it might be that you borrow in Yen (where the interest rate might be low) and use the proceeds to purchase U.S. dollar long term debt. While the trade might produce a positive return, it is risky in two dimensions. First, U.S. rates could increase diminishing the value of the bond you purchased. Second, the exchange rate could take an unfavorable move effectively increasing your borrowing costs.  Financial glossary.

Currency depreciation
A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.

Currency devaluation
A deliberate downward adjustment in the official exchange rates established or pegged, by a government against a specified standard, such as another currency or gold.

Currency diversification
Using more than one currency as an investing or financing strategy. Exposure to a diversified currency portfolio typically entails less exchange rate risk than if all the portfolio exposure were in a single foreign currency.

Currency Exchange Risk
Uncertainty about the rate at which revenues or costs denominated in one currency can be converted into another currency.

Currency futures contract
Contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Currency future
A financial future contract for the delivery of a specified foreign currency. Financial glossary.

Currency hedge
Applies mainly to international equities. Hedging technique to guard against foreign exchange fluctuations (i.e., short Euro l00 mm when holding a long position of Euro l00 mm in stocks).

Currency in circulation
Paper money, coins and demand deposits that constitute all the money circulating in the economy.

Currency no longer issued
Old and new series gold and silver certificates, Federal Reserve notes, national banknotes and 1890 Series Treasury notes.

Currency put option
Contract that gives the holder the right to sell a particular currency at a specified price (exchange rate) within a specified period of time.

Currency option
An option to buy or sell a foreign currency.

Currency overvaluation
Applies mainly to international equities: (a) consideration that a currency is overvalued if private demand for the currency at the going exchange rate is less than total private supply (i.e. central banks are buying up the difference, supporting the value of the currency through foreign exchange intervention); (b) currency value exceeding purchasing power parity.

Currency revaluation
A deliberate upward adjustment in the official exchange rate established or pegged, by government against a specified standard, such as another currency or gold. Financial glossary.

Currency selection
Asset allocation in which the investor chooses among investments denominated in different currencies.

Currency swap
An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency. Usually fixed for fixed.

Current account
Net flow of goods, services and unilateral transactions between countries.

Current account balance
The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities. Financial glossary.

Current assets
Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.

Current coupon
A bond selling at or close to par, that is, a bond with a coupon close to the yields currently offered on new bonds of a similar maturity and credit risk.

Current Coupon Bond
Bonds on which the coupon is set approximately equal to the bonds'yield to maturity at the time of their issuance.

Current dollar
Refers to the use of actual or real prices and costs. Escalation or inflation effects are included.

Current income
Regular series of cash flows that is routinely received from investments in the form of dividends, interest and other income sources.

Current income bonds
Bonds paying semiannual interest to holders. Interest is not included in the accrued discount. Financial glossary.

Current issue
In Treasury securities, the most recently auctioned issue. Trading is more active in current issues than in off-the-run issues. Also known as on-the-run issue.

Current liabilities
Amount owed for salaries, interest, accounts payable and other debts due within 1 year.

Current market value
The value of a client's portfolio at today's market price, as listed in a brokerage statement.

Current maturity
Current time to maturity on an outstanding debt instrument.

Current/noncurrent method
The translation of all of a foreign subsidiary's current assets and liabilities into home currency at the current exchange rate while noncurrent assets and liabilities are translated at the historical exchange rate; that is, the rate in effect at the time the asset was acquired or the liability incurred.

Current order
In the context of periodic repayment schedules, the next periodic principal repayment.

Current production rate
The highest interest rate permissible on current Government National Mortgage Association, mortgage-backed securities.

Current rate method
The translation of all foreign currency balance sheet and income statement items at the current exchange rate. Financial glossary.

Current ratio
Indicator of short-term debt-paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.

Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with the transaction. The arrangement involves a customized hedge contract embedded in the underlying transaction. Financial glossary.

Current yield
For bonds or notes, the coupon rate divided by the market price of the bond. Financial glossary.

Cushion
In the context of project financing, the extra amount of netcash flow remaining after expected debt service.

Cushion bonds
High-coupon bonds trading at a premium that tend to fall in price much less than comparable bonds when interest rates rise (hence the cushion effect), because of their high coupons.

Cushion theory
The theory that a stock with many short positions taken in it will rise, because these positions must be covered by the stock.

CUSIP number
Unique number given to a security to distinguish it from other stocks and registered bonds.

Custodial fees
Fees charged by an institution that holds securities in safekeeping for an investor.

Custodian
Either (a) a bank, agent, trust company or other organization responsible for safeguarding financial assets or (b) the individual who oversees the mutual fundassets of a minor's custodial account.

Custodian bank
Applies mainly to international equities. Bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual or corporate client.

Customary payout ratios
A range of payout ratios that is typical according to an analysis of comparable firms.

"Customer picking prices"
Customer is firm on price and has set the price at which to transact. Financial glossary.

Customer's loan consent
Agreement signed by a margin customer that allows a broker to borrow margin securities up to the level of the customer's debit balance to help cover other customers' short positions.

Customized benchmarks
A benchmark that is designed to meet a client's requirements and long-term objectives.

Customs Broker
An individual or firm licensed by customs authorities to enter and clear imported goods through customs. The broker represents the importer in dealings with the customs authorities.

Customs union
An agreement by two or more countries to erect a common external tariff and to abolish restrictions on trade among members. Financial glossary.

Cut Off Date
The date prescribed in the unclaimed property law in most states for determining the items of property that must be turned over to the state.

Cutoff point
The lowest rate of return acceptable on investments.

Cycles
A full orbital period. Financial glossary.

Cyclical stock
Stock that tends to rise quickly when the economy turns up and fall quickly when the economy turns down. Examples are housing, automobiles and paper. Financial glossary.

Cyclical unemployment
Unemployment caused by a low level of aggregate demand associated with recession in the business cycle.